According to RBI, steady increase in gross domestic saving and investment rates, consumption demand, addition of new capacity as well as more intensive and efficient utilisation and capitalisation of existing capacity are expected to support growth in 2007-08.
Key downside risk
Though RBI pointed to inflation as likely to emerge as key downside risk to evolving macroeconomic outlook, it said “the recent gains in bringing down inflation and in stabilising inflation expectations should support the current expansionary phase of the growth cycle.”
RBI had earlier said inflation should be contained below five per cent during this fiscal, while the medium term outlook was retained at around four per cent. The report also said there was evidence of some cyclical elements in the current growth process, although significant structural changes have also taken place in the economy.
“There is a growing evidence that the economy is possibly poised on the threshold of a step-up in the growth trajectory, provided the vigil on price stability, including financial stability is intensified in a convincing manner,” it said.
Although inflation has eased since end-March 2007, RBI noted that inflationary pressures could potentially persist for several reasons from hardening of international commodity prices — especially oil — and strong growth in monetary aggregates, elevated asset prices and large capital flows with implications for domestic liquidity conditions. 
The RBI, in its Annual Report 2006-07, reviewed the overall performance of last fiscal and also gave an outlook for current fiscal (2007-08).